Casey Jones2 posted:From an article I read the other day over on Railway Age...
"More important than operating ratios or ROI are service innovation and happy customers. The problem with letting finance be your master is that finance thinks that all industries exist primarily to help finance earn ever-higher rates of return — and there is, in fact, no rate of return which finance considers to be “enough.”"
"And for many Class I railroads, the best way to cut costs was to cease operations entirely. "
As a former railroad operating man and later a cost, economic and finacial analyst, I feel compelled to respond to those comments.
First in regard to cost. Sheer cost reduction is never the objective. The objective is to find the least cost way to get the job done well. And that is where having operating, and marketing, managers with a high level of analytical ability is vital.
Service innovations must be consistent with a good operating ratio or they are an exercise in futility. They must increase revenue more than they increase costs. Railroads are a business. Anyone who has run a business knows that while ti's important to satisfy customers, doing so by spending more than you receive doesn't work. That's called bankruptcy.
Finance is not the master unless th company has made the unfrotunate decision to hire senior executives with mainly finance experience. Return on investment is important in any business decison for capital expenditures. It is usually not acheived by actions that cause customers to go away.
One of the msot successful railroads of our time was the UP in the 80's and 90's when John Kenefick was president. An important reason was that he was an operaitng man who also understood marketing and finance. IT was under his regime that the first major class I car scheduling system came ito being.
